BoE’s Mann: Markets are pricing in too many rate cuts
Bank of England (BoE) policymaker Catherine Mann said on Tuesday that “markets are pricing in too many cuts to rates.“
Additional comments
Changed her vote on rates due to consumers disciplining firms pricing, changing dynamic in labor markets and financial market curve.
Discretionary services inflation has started to soften in last couple of month.
Firms are increasingly cutting hours in labor market.
National insurance rate cuts will add more workers to labor market, will affect wage dynamics soon.
In february i thought makrets were easing too much.
Markets are perhaps a bit too complacent about how long the boe will hold rates.
In some ways the BoE does not have to cut because the market already is.
Market curve in the UK is importantly affected by decisions of ECB and Fed.
Wage dynamics in the UK are stronger than in the US and Euro area.
Hard to argue that the BoE would be ahead of the ECB and the Fed.
Market reaction
The above comments fail to move the needle around the Pound Sterling, as the GBP/USD pair continues its struggle with 1.2650, defending 0.13% gains on the day.
BoE FAQs
The Bank of England (BoE) decides monetary policy for the United Kingdom. Its primary goal is to achieve ‘price stability’, or a steady inflation rate of 2%. Its tool for achieving this is via the adjustment of base lending rates. The BoE sets the rate at which it lends to commercial banks and banks lend to each other, determining the level of interest rates in the economy overall. This also impacts the value of the Pound Sterling (GBP).
When inflation is above the Bank of England’s target it responds by raising interest rates, making it more expensive for people and businesses to access credit. This is positive for the Pound Sterling because higher interest rates make the UK a more attractive place for global investors to park their money. When inflation falls below target, it is a sign economic growth is slowing, and the BoE will consider lowering interest rates to cheapen credit in the hope businesses will borrow to invest in growth-generating projects – a negative for the Pound Sterling.
In extreme situations, the Bank of England can enact a policy called Quantitative Easing (QE). QE is the process by which the BoE substantially increases the flow of credit in a stuck financial system. QE is a last resort policy when lowering interest rates will not achieve the necessary result. The process of QE involves the BoE printing money to buy assets – usually government or AAA-rated corporate bonds – from banks and other financial institutions. QE usually results in a weaker Pound Sterling.
Quantitative tightening (QT) is the reverse of QE, enacted when the economy is strengthening and inflation starts rising. Whilst in QE the Bank of England (BoE) purchases government and corporate bonds from financial institutions to encourage them to lend; in QT, the BoE stops buying more bonds, and stops reinvesting the principal maturing on the bonds it already holds. It is usually positive for the Pound Sterling.
Author
Dhwani Mehta
FXStreet
Residing in Mumbai (India), Dhwani is a Senior Analyst and Manager of the Asian session at FXStreet. She has over 10 years of experience in analyzing and covering the global financial markets, with specialization in Forex and commodities markets.
